Lifeboats for Rising Inflation

Thirty years ago gas prices were bouncing off the ceiling, the hopeless Jimmuh Carter was turning down his thermostat and buttoning up his sweater in the White House, the dollar was soft, gold prices were ramping up, and though we didn’t know it, inflation would average 11 percent for the next three years.

Change the name on the mailbox at 1600 Pennsylvania Avenue, and that sounds eerily like today. Is inflation heading for double digits again? In case you missed the Eighties, the bleeding of value from our dollars caused a national gloom. What a buck would buy in 1978 cost $1.80 10 years later, and $3.33 now.

If we’re headed for leaky dollars, I want mine out of the money-market fund and into something that adds a zero to the right of the $ as regularly as those Picassos and Renoirs at Sotheby’s.

I’m thinking collector cars might serve as a perfect hedge against inflation. For an expert opinion, I called Dave Kinney, the unrepenting car guy behind Cars That Matter, a three-times-a-year price guide for keeper cars. Though his publication is barely into its third year, he’s been a car appraiser and buy-and-sell type long enough to have owned, by his estimate, “over 500 cars” in his 53 years.

Among collectors of pop culture, there’s a “20-year rule,” which holds that things 20 years old have been out of fashion long enough to be interesting again. Kinney said he hadn’t heard that applied to cars, but 20 years is about the time depreciation bottoms out and cars reach a low point on the price curve.

Is there a Dow Jones index for collector cars? Not a proven one like the Dow, but this past summer, Cars That Matter created seven indexes, each relating to a different category of cars, using values from its past issues back to 2006. At the top end, Kinney’s “Blue Chip” index includes 25 sought-after cars that average more than $1 million. The “Small Cap” index illustrates the other end of the market: a dozen cars under 25 large.

To see if these cars are moneymakers, I compared changes in index values with a widely agreed-upon measure of inflation, the Consumer Price Index, which averaged 2.85 percent last year and 3.24 percent the year before and looks likely to top four percent this year (unless you look at my bills, which have jumped more like 10 percent). We can back-test the investment performance of old cars using the total inflation for 2006 and 2007, which was 6.2 percent. If index values rose more than that, inflation was beaten.

Only one category actually lost money. The “Smokey Burnout” index made up of 15 Detroit muscle cars dropped 8.0 percent. Maybe we shouldn’t be surprised because that group had soared like Florida real estate earlier this decade. The “Small Cap” index of “affordable classics” includes Porsche 914 two-liters, 1965–67 Corvair Monza convertibles, the 1963 Studebaker Avanti R1, and nine more dogs and cats; it held even with inflation.

Don’t think that “buy” and “sell” prices give the full financial accounting of car collecting. Like horses, cars eat; you have storage costs, maintenance, insurance, and license fees. But if you owned something on the “Blue Chip” index, maybe the perennial favorite AC Cobra 427 or Benz Gullwing, no worries. This index leapt 72 percent over inflation. The “Rosso Corsa” index of 13 Ferraris did even better, up 126 percent. Of course it takes money to make money; the average buy-in at this Ferrari table is $1,948,884.

Lesser tables did okay. The best of them, the “Silver Arrow” index of 21 high-value Germans—lots of Porsche 356s and Benz SLs here—was up about 34 percent over inflation. The “Atomic Jetfire” index of exuberant Americans of the ’50s rose 19 percent.

As the fine print of mutual-fund brochures warns, past results are no indication of future performance. But inflation is looming. Could we avoid the shrinking of our dollars by parking them in some old car and reap some tax-free fun at the same time? I asked Kinney for his list of affordable inflation beaters.

He offered three closely related Americans as his top picks: the 1966 Oldsmobile Toronado, the 1966 Buick Riviera, and the 1967 Cadillac Eldorado. Each of these was the first year of a shared coupe body, the Toro and Eldo featuring GM’s new front-drive system. These were huge and expressive shapes, great lookers to my eye, GM design at its best. Did I say huge? The Eldo was more than 220 inches long. The sharp sculpturing of the Olds and the muscular sleekness of the Buick were watered down for 1968, limiting the best designs to a narrow two-year range. Serious collectors hold out for the first year, however. Figure low thirties for a first-rate Toronado, a few thou more for a Riviera, and high teens for a ’67 Eldorado.

Harder to find are the first-generation VW Rabbit GTI (1983–84) and Honda CRX (1984–87). “Good fuel economy and fun in buckets,” Kinney says. You should be able to buy them for “no money” if—big if—you can find one worth buying at all.

Last on his list is the Datsun 240Z (1970–73). “These were pure, unadulterated, inexpensive sports cars,” he says, “and they still are.” Expect to pay about $21,000 for one in nearly flawless condition. Maybe you could move up to a 260Z of 1974 but forget the 280Z of 1975–78, he says. Too flabby and overdecorated.

If we’re in for a replay of the Eighties when my bucks leaked 60 percent of their buying power, why not let them ride this time in a Bullet Bird, a 1961–63 Thunderbird, convertible of course. Dave, whaddya think?